Bratz doll manufacturer MGA Entertainment Inc. has moved to revive its claims that Mattel Inc., maker of Barbie, stole its trade secrets by sending masquerading employees to toy fairs.
MGA’s motion, filed on Wednesday, followed reversal by the U.S. Court of Appeals for the Ninth Circuit of a $172.5 million trade secrets award that MGA won in 2011 in its high-profile copyright infringement battle with Mattel. The appellate court found that MGA’s trade secrets complaint should not have been allowed into the copyright case automatically as "compulsory" counterclaims.
In an effort to revive those claims, MGA now wants to amend its complaint to include the trade secrets claims. MGA had sought to do so earlier, but U.S. District Judge David Carter in Santa Ana found that an amendment was unnecessary. He instead concluded that those claims were compulsory because Mattel had brought counterclaims alleging that MGA stole its own trade secrets when it hired several of its employees. In the underlying copyright case, filed in 2004, Mattel asserted that MGA had infringed on its copyright by hiring away the Bratz designer.
A retrial on its trade secrets claims, MGA argued, would focus merely on whether the statute of limitations barred the company from bringing them, since a jury has already ruled against Mattel regarding its conduct at toy fairs.
"If the timeliness issue is resolved in MGA’s favor by a jury, MGA will move to reinstate the first jury’s verdict against Mattel on the issues of trade secrets liability and damages, so that the resources and effort of this court and the first jury for the better part of 2011 will not be in vain," wrote MGA attorney Jennifer Keller, a partner at Keller Rackauckas in Irvine.
Keller and Mattel attorney Michael Zeller, a partner at Quinn Emanuel Urquhart & Sullivan in Los Angeles, did not return calls for comment.
Mattel added trade secrets counterclaims to its copyright case in 2006. Two years later, a jury awarded $100 million to Mattel for copyright infringement, but the Ninth Circuit reversed that outcome in 2010. Soon after that, MGA brought its own trade secrets counterclaims under the California Uniform Trade Secrets Act.
But Mattel, moving to dismiss, argued that the claims exceeded the statute of limitations because MGA had reason to suspect such illegal conduct more than three years before filing its counterclaims.
To avoid addressing the timeliness issue, MGA argued that the trade secrets claims were compulsory because they were filed in response to Mattel’s counterclaims. Carter agreed on Oct. 5, 2010.
On April 21, 2011, a federal jury found that Mattel had stolen MGA’s trade secrets, and Carter issued a $310 million judgment that reflected the verdict, including actual and exemplary damages. The judgment, issued on Aug. 4, 2011, also included $140 million in attorney fees and costs, mostly for having to defend against Mattel’s copyright claims; the jury had ruled against Mattel on copyright infringement.
The judgment was stayed pending appeal.
On Jan. 24, the Ninth Circuit reversed Carter’s decision to include the trade secrets claims as compulsory, finding that "MGA’s claim did not rest on the same ‘aggregate core of facts’ as Mattel’s claim."
"That both Mattel and MGA claimed they stole each other’s trade secrets isn’t enough to render MGA’s counterclaim compulsory," the appellate court concluded and dismissed that portion of the judgment, including interest and related fees and costs.
The Ninth Circuit did not address whether the trade secrets case exceeded the statute of limitations but noted that MGA could refile its claims.
The Ninth Circuit also upheld the $137.8 million in attorney fees and costs that MGA was awarded for defending against Mattel’s copyright claims. MGA, its insurers and its former law firm, Orrick, Herrington & Sutcliffe, are fighting over who gets what portion of those fees, and Mattel on Feb. 13 moved to permanently enjoin MGA and any third parties from enforcing Carter’s judgment. Mattel posted a $315 million bond soon after that judgment.
Carter heard arguments about the bond issue at a hearing on Tuesday.
Amanda Bronstad is a reporter with The National Law Journal, a Recorder affiliate.